Growing investor fears that Washington could miss a payment on its debt has led to a surge in the market for derivatives that insure against a US default. The Financial Times says the average daily trading of credit default swaps (CDS) which give investors protection on US government debt, has jumped to €150m in the past week from about €1.5m in recent months.
The spike in trading activity is unusual for US sovereign CDS, which is traditionally a very thinly traded market, as traders often say buying protection on the possibility of the US government restructuring or defaulting on its debt, is akin to buying insurance for the end of the world.
